Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Consider the following table, which gives a security analyst's expected return on two stocks and the market index in two scenarios:
Aggressive
Scenario
1
Probability Market Return
0.5
2
0.5
7%
20
Stock
3.2%
Defensive
Stock
5.0%
31
14
Required:
a. What are the betas of the two stocks? (Round your answers to 2 decimal places.)
Beta A
Beta D
2.14
0.69
b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.)
Rate of return on A
Rate of return on D
17.10 %
9.50%
c. If the T-bill rate is 7%, what are the alphas of the two stocks? (Negative values should be indicated by a minus sign. Do not round
intermediate calculations. Round your answers to 2 decimal places.)
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Transcribed Image Text:Consider the following table, which gives a security analyst's expected return on two stocks and the market index in two scenarios: Aggressive Scenario 1 Probability Market Return 0.5 2 0.5 7% 20 Stock 3.2% Defensive Stock 5.0% 31 14 Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) Beta A Beta D 2.14 0.69 b. What is the expected rate of return on each stock? (Round your answers to 2 decimal places.) Rate of return on A Rate of return on D 17.10 % 9.50% c. If the T-bill rate is 7%, what are the alphas of the two stocks? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
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